Western Digital Shares Soar Amid Rumors of IBM Takeover

Shares of Irvine-based Western Digital Corp. have nearly doubled in the last week, including a 21% jump on Thursday, amid rumors that it may be a takeover target of IBM Corp. or others.

The beleaguered computer disk drive manufacturer saw its shares hit a six-year low last week as its industry continues to struggle with rock-bottom prices and a glut of inventory.

Officials at Armonk, N.Y.-based IBM, the world’s largest computer maker, and Western Digital declined to comment. But industry analysts said the market was abuzz with talk of a Western Digital buyout.

“When you get such a large increase in trading, you have to think something is brewing,” said Charles Payne, head analyst at Wall Street Strategies Inc., a research firm that follows mergers and acquisitions and rates their probability.

Payne said the low price of Western Digital shares make the “risk/reward” factor favorable for investors. Western Digital shares last week hit $3.50, their lowest since 1993. On Thursday, they rose $1.19 to close at $6.88. Even after the boost, however, the stock is off 54% since the beginning of the year.

Another possible suitor is Seagate Technology Inc., the No. 1 disk drive maker. The Scotts Valley, Calif.-based company also has been mentioned as a possible buyer for Milpitas, Calif.-based Maxtor Corp., the No. 4 disk drive maker.

Seagate spokesman Phil Montero said the company “is always actively looking for partnerships and acquisitions” but has nothing to report regarding the speculation.

Maxtor spokeswoman Catherine Hartsog said, “When you get this kind of situation, that creates an environment where lots of rumors are spawned.”

The stocks of all the hard drive manufacturers have risen in the last week in anticipation of strong personal computer sales in the second half of the year.

Rumors about a possible IBM takeover of Western Digital have made the rounds occasionally over the last few years, in part because the two have already worked together.

Last year, Western Digital signed a technology-sharing deal with IBM to build new disk drives for personal computers. The deal was intended to give IBM access to new outlets to distribute its products and to give Western Digital a jump on emerging technologies and manufacturing lead-in time.

Also, Charles Haggerty, chief executive of Western Digital, is a former IBM vice president who worked at Big Blue for 28 years before joining Western Digital.

Haggerty said last month that he would retire by the end of next June, and the company is looking for a successor, recently signaling who the two leading internal candidates are by naming Matthew Massengill and Russell Stern co-chief operating officers.

Western Digital has lost $845.6 million in the last seven quarters and is expected to lose more than $90 million this quarter.

The company has been trimming staff and operations over the last year as it struggles with a price war in the desktop-computer hard drive market that has hurt virtually every player in the field.

Western Digital last week announced it would cut 2,500 jobs in Singapore by the end of the year and move some of its operations to Malaysia to take advantage of cheaper labor.

*

Bloomberg News was used in compiling this report.